The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis

46 Pages Posted: 7 Jan 2008

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies

Date Written: April 1982

Abstract

This paper examines the effect of liquidity constraints on consumption expenditures using a single-time cross-section data set. A reduced-form equation for consumption is estimated on high-saving households by the Tobit procedure to account for the selectivity bias. Since high-saving households are not likely to be liquidity constrained, the estimated equation is an appropriate description of how desired consumption dictated by the life cycle-permanent income hypothesis is related to the variables available in the cross-section data. When the reduced-form equation is used to predict desired consumption, the gap between desired consumption and measured consumption is most evident for young households.

Suggested Citation

Hayashi, Fumio, The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis (April 1982). NBER Working Paper No. w0882. Available at SSRN: https://ssrn.com/abstract=351408

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

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